Essar Ports: Under-construction projects to determine company's growth

MUMBAI: Over the last couple of quarters, Essar Port has been able to report a healthy growth in profits on the back of take-or-pay agreements with group companies. However, the pace of execution of its under-construction port projects will determine if the company would be able maintain its growth.

This apprehension has been highlighted by earnings report from a leading research firm. It last week downgraded Essar port to Neutral, thereby reducing the price target from Rs 135 to Rs 100. In its latest report, the brokerage firm highlighted that the company is facing delays in securing environmental clearance for its under-construction projects. This delay would push the project completion date by nearly two years.

Presently, Essar ports has two operational ports at Vadinar and Hazira in Gujarat with a total capacity of 88 million metric tons per annum (MMTPA). The company is plans to ramp up its capacity to 158 MMTPA by FY15 of which majority of the cargo will be handled for group companies. The company is building a coal terminal at Salaya for captive purpose of Essar Energy. The Salaya port project has not yet to receive forest clearance. as a result, commissioning of this plant is likely to get delayed. At current market price of 89, the stock is trading at a P/E of 57. The current market price factors in the revenue visibility and the growth potential of the company.